Headline Confusion: Mortgage Changes Explained

The new information about mortgage pricing is confusing to experts in the field, let alone the public.  I personally do not agree with what Fannie Mae and Freddie Mac are doing.  I do not think it is in the best interest of the housing market to confuse the public.  However this blog will explain how they are calculating everything and hopefully it will eliminate some the confusion that currently exists.

Recent changes to mortgage costs are not punishing those with higher credit scores. In fact, nobody with better credit will be paying more for a mortgage than somebody with lower credit. Let's dive into the facts and clear up any misinformation.

  • Loan Level Price Adjustments (LLPAs) are rate adjusters that are based on loan features including credit score and loan-to-value ratio. Throughout the years, Fannie Mae and Freddie Mac have made a number of changes to LLPAs. Recently, they have imposed new changes. Stay informed on what these changes mean for you.
  • While the change we are currently discussing may not be new news, we want to remind everyone that it went into effect on May 1, 2023, for loans delivered to Fannie/Freddie. Changes that impact fees and guidelines are almost always implemented based on the delivery date, so lenders have already priced in the change weeks ago.

Breaking News: The Truth About the "New" Mortgage Tax

You may have heard rumors of a new tax on mortgage borrowers with higher credit scores, but before you start panicking, let's get the facts straight. Contrary to popular belief, intentionally lowering your credit score won't give you a better deal on a mortgage rate. Don't believe those misleading headlines that suggest otherwise.

The truth is, changes to Loan Level Price Adjustments (LLPAs) imposed by Fannie Mae and Freddie Mac have caused some confusion. These adjustments are based on loan features such as your credit score and the loan-to-value ratio. While there have been changes to the LLPAs over the years, a substantial change was announced in January of this year. So, what does it all mean? Let us help you navigate through the noise and get the real story on this so-called "new" mortgage tax.

If this is news from January, why is everyone talking about it now?

Many people are confused about how "delivery dates" work for Fannie Mae and Freddie Mac loans. Essentially, changes that impact fees and guidelines are often implemented based on the date the loan is delivered to Fannie/Freddie. It's important to note that "delivery" typically occurs a few weeks after the loan has closed, but it can take even longer than that.

To add to the confusion, loans are often quoted and locked in for more than three weeks before delivery. This means that many lenders have already begun implementing changes that will go into effect on loans delivered on or after May 1st, 2023. In fact, some lenders have been implementing these changes for months, especially for loans with longer lock-in periods.

If you're a borrower or a lender involved with Fannie Mae or Freddie Mac loans, it's important to understand the delivery process and how it affects changes to fees and guidelines.

Are borrowers with lower credit scores receiving discounts, while those with higher credit scores are paying more?

Confused about LLPAs and their impact on credit scores? Let us clear things up for you. LLPAs are changing and these changes can result in lower costs for individuals with lower credit scores. However, those with higher credit scores may experience an increase in costs. It's important to note that this information is purely factual and does not offer any opinions on whether these changes are good or bad. Don't confuse the change with the actual cost.

The following tables show the differences in LLPAs before and after the change. RED = rising costs GREEN = falling costs

Looking at the initial chart, it may seem like those with a 640-credit score pay less than those with a 740. However, this is simply due to recent changes in the system.

To gain a more transparent understanding, we've provided a new table below which outlines the outright LLPAs for the same credit score and loan-to-value ratio matrix.  By understanding the impact of your credit score and loan-to-value ratio on your mortgage payments, you can make informed decisions and potentially save money in the long run.